Friday, December 17, 2010

One More Time: The Subprime Leaders

For the usual old-style political reasons, some old-style political types are blaming the entire crisis on Fan/Fred.

Yes, they were a part of it--but a small part.

The major-league offenders are listed on the chart.

HT: Barry


neomom said...

I am no genious with credit default swaps and bundling mortgage securities but....

Wasn't a big incentive for all these banks to do the sub-primes because Fan/Fred were guaranteed to take the risky ones and then bundle them with safe mortgages and sell them as securities?

So while they didn't have a lot of initial issue mortgages, Fan/Fred were up to their eyeballs in them?

Dad29 said...

Not really.

It was a case of "too little, too late." Fan/Fred weren't permitted to purchase the real garbage ever, and only got into the 'semi-garbage' late in the game.

Most of the real sewage went directly from the originators to a 'warehouse', then to Goldman, Bear, (etc.)

However, Fan/Fred are NOW sitting on piles of crap which they bought from the banks--after the collapse began.

neomom said...

Good to know... It would be nice to see some sort of comprehensive timeline. One also has to wonder what some bank presidents were smoking when deciding that NINJA and 125% LTV's were a good idea.

Dad29 said...

I put a couple of links to Ritholtz' blog in this entry.

Go there. He has a lot more info.

As to the banks, it was EARNINGS, of course. Big fees, almost no work, plus a piece of the action on the residuals.

You wouldn't want to the only banker at the club with 'flat' earnings, would you?

There were exceptions, of course. M&I (ironically) stayed away from bad deals on the residential side (mostly) but got cleaned on the condo developments.

J. Strupp said...

Thank you for beating the drum on this Dadster. Ritholtz too.

We can't learn how to deal with this crisis without diagnosing the problem. While Fannie/Freddie are problems for sure, they lost considerable marketshare to the banking industry during the bubble because they weren't allowed to do what the other guys were doing.